Earnings Transcript for VTY.L - Q3 Fiscal Year 2024

Operator: Hello, and welcome to the Vistry Trading Update Conference Call hosted by CEO, Greg Fitzgerald and CFO, Tim Lawler. My name is Alex, and I'll be coordinating the call today. [Operator Instructions]. I'll now hand it over to Craig Fitzgerald to begin. Please go ahead.

Greg Fitzgerald: Thanks, Alex. Hi, everyone. As Alex said, it's Greg Fitzgerald. I'm delighted I'm joined by Tim Lawler, Susie Bell, and Stephen Teagle. So thank you all for joining the call today, and I'd like to start by going straight into the detail of the cost issues, we previously reported in our sales division. Here, I'll focus on three key areas. First, what the issues were and the steps we have taken to review our entire business. Two, the reasons for the incremental negative impact on our forecast versus October 8 and third, most importantly, why, despite these challenges, we are confident in the company's future and our ability to deliver substantial shareholder value going forward. So, first, the issues we found in our 4x housebuilding businesses that make up our South division. Poor commercial forecasting largely focused on large, older, former housebuilding sites where build costs were wrong to the tune of 10% to 12%. A divisional leadership, which consisted of former house building, businesses carrying previous mistakes. Management capability in certain areas has been an issue. Noncompliance with our processes and a poor divisional culture all relates to the South division. And what did we do in response to this? On top of the independent review, which, is set out in the statement, I initiated the most thorough internal review that I've seen in my 40-year odd career. All sites, all regions have been thoroughly reviewed with CVRs. That's, as you don't know, that's, full life of site cost reviews. The scope of the reviews covered six divisions, our 26 business units, and this has been conducted at a senior level with the ELT, that's the executive leadership team, leading the process. In fact, I sat in the CVR review myself of our largest site earlier this week. We have looked at compliance with processes, the quality of reporting, and, most importantly, the quality of people within the business. That's demonstrated that the issues in the south division principally relate to sites from the former housebuilding business and, critically, we found no systemic issues outside of the South division, and that's the big takeaway. So let's address head on the negatives that came out of this exhaustive review. There were three primary reasons for our reduced profit guidance. First, the review showed that the financial impact of the issues in the South division were greater than we previously estimated. But I can tell you now, following the exceptionally deep review, we are extremely confident that we have now uncovered in the last five weeks the full extent of the issues and there will be no more adjustments. The second reason, we have gone through the rest of the business side by side with a fine-tooth comb and found a number of individually small items, business as usual, I would say, in aggregate that reduced our profits for the year by £8 pounds and third, as you've heard from other house builders, market conditions have generally been weaker than we had hoped. We have reflected these weaker conditions in our forecast. And again, this may prove conservative we'll wait and see. Back to negatives. Now let's look at just a few of the positives that give us confidence we can rebuild over the next 12 months and put the company back on a path to deliver our previous medium-term targets. Most importantly, the issues relate entirely to the South division and predominantly one of the four business units. We have reviewed our entire business and can say with confidence that the other divisions are healthy and operating well. In fact, our partnership sites have some of the best cost management in our business, and they are typically lower risk as the projects are completed faster. As I mentioned, the impact of sites were nearly all legacy housebuilding sites. That's important as it's not as it's not reflective of our partnerships model and that remains the right model for value growth. The second reason to be confident, the issues in the south division are very fixable. We will be stronger and a better organization after this. We know what best in class operational standards look like as they already exist in other divisions. We have a number of our partnership businesses already producing 12% margins and return on capital employed in excess of 40%, and those best-in-class standards will become our norm across the entire business. Also, we can and will make necessary management managerial tweaks such, such that an issue like this never happens again. This year has been through two major acquisitions and a major strategy shift in the past several years. And in some ways, the issues are a function of the two of too many organizational layers developing. These changes, I am making will eliminate these, layers and see me operating much closer to the coal face. Third, we will move past these issues. The issues on the specific sites in the south division will largely work their way through the system by the end of next year when these projects conclude and are replaced with new healthy projects that are underwritten at higher standards. At that point, I believe we will largely be on track back on track for our medium-term trajectory, and there may be a set function improvement in our profitability in 2026 and beyond. Fourth, our performance. We are performing well on our critical operational metrics, such as on time delivery, build quality, safety, customer satisfaction, and employee retention. In fact, we have just concluded our biannual independent staff survey, the results of which put us in the upper quarter of the manufacturing sector. This is our foundation and gives us confidence that we can quickly get back on track. And finally, the overwhelming support we've had from our partners, customers, and subcontractors. They absolutely see Vistry delivering high quality homes on time and are committed to grow with us going forward. So in summary, very disappointing to find further issues in the south, but we are addressing them, and they are not symptomatic of the wider business. And I'll just finish with on the positive side, they are one off as we clear the house building legacy land bank. The business has had a robust, if you like, MOT through the independent review and the phenomenal amount of work that we've done in the last month, and we are confident that we have the controls in place going forward. We remain financially strong and anticipate finishing the year with a small amount of debt and, indeed, lower than the debt we had at the end of 2023. Our partnerships model remains the right one for driving value, right for the political environment, and right for capturing further momentum. We remain in a leading position for working with our partners and are completely aligned with the government's ambition, and that's important. Before we move on to questions, can I just ask Tim to put a little bit more color around the movement of the numbers? Please, Tim.

Tim Lawler: Thanks, Greg. Good morning, everybody. Yes, a few moving parts within the numbers. So just to try and provide a little bit more clarification beyond what is in the trading statements. Let's start with the direct impact of the south numbers. So we did we came up with an initial estimate back at the start of October as the issues broke that the total impact of the cost issues would be £115 million over the life. We've now concluded that number is £165 million, so an increase of £50 million over the life. That £50 million we will see £25 million of that hitting the FY24 profits, £20 million impacting the FY25 profits and the balance of £5 million later years. So that means the total impact of the South issues in this year in FY '24 £105 million and the total impact in FY '25 is £50 million, which then leads us into our revised profit expectations in the statement today. We are now saying we're expecting profit before tax to be circa £300 million in FY '24. So that reduction of £50 million from the previous guidance, £25 million is from the South division, as I just mentioned, the £8 million that Greg mentioned from our detailed review across the rest of the business and the balance is due to a lower expectation on volumes for the year, which is partly due to market and partly due to a slowdown in taking stock in the south division. So our guidance for volumes for the year is now circa 17,500. In terms of cash, the south division issues had already been reflected in the cash forecasts for the year, but previously, we talked about hitting a net cash balance for the end of the year. We now believe it will be a net debt position that we're in at the end of the year due to that reduction in volumes that I just mentioned. However, we still think that we're going to end up in a strong net debt position against last year despite these challenges, and we expect our net debt for the year end will be a lower value than the £89 million reported at the end of 2023. For FY '25, it's too early to provide any formal guidance. What we would say though is that we would expect analyst forecasts to come down as a result of what we're announcing today and we've named the identified the specific £20 million reduction in relation to the South division. On top of that, we'd expect volumes to be lower in £25 million than current consensus for two reasons. One is that we've got a lower starting point, the 17,500 for this year and the second is that we're taking a more conservative view on growth given the market conditions and the need to stabilize the south division. In terms of the medium-term targets, Greg said, we remain committed to those medium-term targets and to be a capital light business that distributes to shareholders. What we need to do there is we need to review the timeframes in light of what we've discovered. We need to take account of the fact that we're starting from a lower point and over the next couple of months, we're going to be reviewing the direct impact of the South, the impact of the changes that we're putting in place as a result of the South issues and also complete the budget process that is going through. We'll provide greater updates on the timeframe of the medium-term targets in the New Year. And with that, I'll pass back to you, Greg.

Greg Fitzgerald: Great. Very good, Tim. Thank you. So we'll now take questions, Alex, please.

Operator: Thank you. [Operator Instructions]. Our first question for today comes from Aynsley Lammin of Investec. Your line is now open. Please go ahead.

Aynsley Lammin: Thanks very much. Good morning. I've got three questions actually. Just on the medium-term kind of outlook the target you haven't explicitly mentioned the £800 million operating profit but I guess that still is in place. And when we think about that is it just a question of pushing out the timing of that I mean five of the I think 60% of the costs relate to five big sites as once they work through is it correct to kind of be of the view that actually your £800 million still in place and you see no negative impact from whether it's reputationally impact on partners, their willingness to do business with the group? And once you work through those sites, you're back on track as you say. And if you give any kind of indication of the issues that might push the kind of timing of delivering £800 million that would be helpful. Secondly, just on average net debt, I'd be interested to have an update on what your average net debt is expected to be for this year. And then the last question, I think there's a line in there, and you're also reviewing your building safety provisions. Just a bit more color around that in terms of the scale of the actual provision increase you might expect before any recoveries or the tax impact would be helpful. Thanks.

Greg Fitzgerald: Okay. I'll hand over to Tim for all three of those. But just on the before I get to Tim with the numbers, with regards to our partners, as I said in my opening remarks, Aynsley, and we've spoken to them all during the course of last night and this morning Susie and Stephen Teagle has, they remain incredibly supportive and see this as a south division issue, particularly the transfer of house building sites into partnerships. So, in a strong place with our partners. Tim?

Tim Lawler: Okay. So the first one, in terms of the medium term targets, yes, the £800 million AOP remains part of our targets, but clearly that's a question of timing. So the demand is there for the business. We can achieve the volumes that we previously talked about, but we're starting from the lower point so that AOP target will be pushed out to the right, but exactly to when we need to work through. In terms of average net debt, we're expecting average net debt to be in the region of £500 million for the full year. And in terms of the billing safety provision, so we're midway through the review process. There's a lot to consider in this area, and we've got to work with our auditors and other advisers to conclude. So it's too early to talk about the total quantum of the provision increase. In terms of the cash impact next year, there were two things at play here. One is the timing and we will provide a clear update in terms of the timing because the profile of the spend is moving around and we will provide clear guidance on exactly where 24 finishes up, which is 25 on the timing and the overall building safety provision increase will have some impact on cash. But as we said in the statement, we don't expect that to be material because while the total costs going out in the provision are likely to go up. We will expect our recoveries to go up as more sites are introduced and also there was a tax benefit or a tax deduction on that provision as well, which means that the cash impact in the year from the additional provision won't be material. Thanks, Tim. Thanks, Aynsley. Just one yeah, could I just have one last one, will you name the accounting firm, the big accounting firm that did the independent review?

Tim Lawler: We can't do that Aynsley. This is a stipulation from them. And the reason is pretty simple is that it just requires them to go through more steps and hoops in their process and we wanted them to get on with it as quickly as we could. So we didn't want to have to wait two weeks to go through their internal risk programs. So that's the reason why we didn't negotiate to get them in. But you can take it as well that it's one of the larger accounting firms.

Aynsley Lammin: Great. Thanks very much.

Operator: Thank you. Our next question comes from Charlie Campbell of Stifel. Your line is now open. Please go ahead.

Charlie Campbell: I mean just yes, just sort of one question, but it's probably quite broad actually. It's just really just to understand the change in the volume guidance a bit more and just sort of try and understand kind of that 500 units change, what's market and what's kind of a deliberate policy to slow down a bit? And just if you could just explain in that context and also kind of us looking further out, just a bit more color around kind of some slower demand around partnerships around rates going up. Is that a temporary thing? Or should we be thinking about just that there's a bit less appetite from that sector than we might have otherwise thought before? Just if you could help us out on those, that would be really appreciated. Thank you.

Greg Fitzgerald: Okay. So on the numbers, the 500 reduction, I mean, it all I can say, it's a view that's here with less than two months of the year to go, and it's a review on, we found the market leading up to, the budget, the private market, a little bit uncertainty caused, reservations to be slightly lower than we would have expected. And we're also, you know, whilst we've been focusing so much on going through everything in the SaaS division and it's been extensive, And then the rest of the group, we've just taken a view that there will be, particularly in the South, a couple to 300 units less coming out of that as we've been focusing on, the management structure of that business going forward. With regards to, the market, I mean, before I go into the market, that affordable market, if you like, with regards to the budget, the PRS market, we found that it's been the best market for us in the last 12 months. I don't think, the budget entirely helped that going forward. So I'm sure, the interest rate dropped yesterday would have helped, but the PRS market needs to think about, what the government has said and that potentially is a little bit more inflation. With regards to the affordable market, and this is the major part of our strategy, what I would say, and you can, all take this however you like. So 12 months ago, we introduced the partnership strategy, and the parts partnership strategy was on the back of, a government coming in during the course of 24 that would absolutely be focusing on house building and particularly partnerships in affordable housing to drive unit numbers up. And so at the time of the, strategy announcement, we had a conservative government who had made planning by removal of local plan numbers incredibly difficult. No money really going into, the affordable housing program, etc., etc. One year on, we have a labour government that have come in that took nothing but nothing but since. We want 1.5 million homes delivered and we want to file a greater number of affordable homes, going forward. So in the, budget, a few days ago, they announced a £0,5 million stimulus because we are at the end of the 2021, 2026 affordable housing program, which we knew. So at the time of announcing the strategy, most of the, cash available in that program finishing in 2026 was either spent or allocated. So the £0.5 billion that they announced in the budget is helpful. We know the government and housing associations are currently talking about, rent reviews, at CPI plus 1% and maybe five-years, maybe 10. We'll see how consultation goes, which is very, very helpful and the, the noise and the mood music from the government is, as we expect, the replacement to the 2021, 2026 affordable housing program taking us to around 2031 will be announced in the spring budget. But the government absolutely know that the only way they are going to get anywhere near £1.5 billion homes is to absolutely put more money into that program. But that program will be the first time, whatever goes into it, would be the first time in the last two years where there is new money available for affordable housing. So on the affordable housing side, the strategy, we're in a better place today than we were. And as I explained to our board yesterday, if we haven't had these issues in the south of the country in the south division, and Labour didn't get into power, and we continue to make this year's forecast. Our strategy would have been more in doubt, in my opinion, and, than having issues in the south division with, a conservative party still in power carrying on with, their issues with regards to planning and where they are with affordable housing. Our strategy is in much better place with this new Labour government as long as they convert their ambitions into absolute targets. So long winded answer there, Charlie, but I'm what I'm basically saying is, I think on the PRS market, a few schemes may be, delayed a month or two as they look at the potential of inflation going forward. But on the affordable market, very happy that we've got up to half a £0.5 billion worth of additional stimulus going into the sector, which is much needed and incredibly buoyed by, the talk from the government with regards to rent agreements with housing associations and local authorities, in particular, the owners and the youngster segment put into the replacement for the 2021, 2026 affordable housing program. Thank you.

Charlie Campbell: Thank you.

Operator: Our next question comes from Will Jones of Redburn Atlantic. Your line is now open. Please go ahead.

Will Jones: Thank you and morning. I'll try three if I can please. The first is back on the southern division and the cost hits which are heavily condensed into 2024 and 2025. I appreciate given the house building element of it. Some of that will be looking back as well probably before 2024 to catch up. But could you just reassure us that when you think about the land that has been bought by that division recently that the cost errors have not spilled into those land buying assumptions that may impact, I guess, further out? The second one was just I think that the release mentions the pressure being felt by the business as a contributing factor. I just wondered, do you think it was more the pace of change in the business or the pace of growth being sought? And how do you think about the appropriate either rate of sale, level of volume, degree of growth that is appropriate without maybe similar issues reoccurring in the future? And I think the last one was just you mentioned about organizational layers, Greg, in your opening remarks and how that may have contributed, perhaps some more color on that and what might change on those layers. Thank you.

Greg Fitzgerald: Okay. I'll take the second and third, but Tim will take the first part.

Tim Lawler: Yes. Okay. So yes, actually, in some ways, it's comforting that after all this review, we found that the issues are centered on 2024 and 2025 because what that says is that they are largely relating to sites that are nearing their completion. So there's a minimum amount in 2026. What we've continued to do through the year is ensure that any new land acquisition comes through, it's in the hurdle rates of the new partnership model. So everything that we sign off is at 40% plus ROCE and we haven't been making adjustments to any of those contracts during this process.

Greg Fitzgerald: And then, well, on your second point, which is pace pressure. Yes, the pace and pressure has clearly, impacted to an extent, the south division. But what I can say is that, the bill costs, were wrong by 10% to 12%. Will. So they weren't wrong last week or six weeks ago. They've been wrong for a period of time. And the nine sites that we talked about on October 8th, the build cost of those nine sites was not a million miles away from £1 billions. So 10% to 12%. I've seen that kind of number before lots of times, but not on nine sites altogether, not on, nine sites, one particularly, being very, very large. But the pace and pressure, I think it's not to do with, it's to do with the capability, around, of certain individuals within the division because the pace and pressure, I can say, with an absolute straight face, is at least the same, in the other five divisions, and the other five divisions are dealing with that pace and pressure exceptionally well and are a little bit dumbfounded as to what's happened in the mid-south division? So the pace and pressure of the change is no different in the West, East, North, Midlands, divisions, and London. So there's no real issues there, but you obviously need people to be able to deal with that patient pressure. And then on the organizational layers, up in because of the acquisitions of Galliford and then Countryside. We up until, Christmas last year, we had an organizational structure, of a COO and then beneath that, we had, a CEO of partnerships and a CEO of house building, then divisional chairs beneath that, which is a function of the, acquisitions. And in hindsight, looking at it now, too many layers. So one of those layers was removed, as we came into, this, financial year, January 24, with, CEOs of partnerships and, house building, no longer there with the divisional chairs reporting through to the COO. So some of that divisional led already been taken away, and we are currently reviewing what else we can do to primarily, I have to say, get me closer to the, cold case, but we'll probably be able to, make further announcement on that as we get into, kind of, January with the next, training update. Did you want to add.

Tim Lawler: Yeah. Just one thing. So we was asking that pace change versus pace of growth. I think if we think about the feedback we've got from the review and talking to people internally as well, the sense is that the sort of things that refer to in terms of pace have been very much those internal looking things around the change programs. So what we have been going through as a result of the integration, so that's all structure, system changes, standardization of processes. We haven't heard people say, we've got too many we're trying to build too many houses, we're trying to buy too much lands. It's not been a volume or growth-related pace issue. It's been a small internal stability point.

Greg Fitzgerald: Well, and what I can add in this from an Bovis perspective in 2017. Bovis were at the time, going down a growth program from 2014. And if you look at what happened to Bovis back then, in 2013, 2014, they were a 5 star house builder and their RIs, which is basically, a gauge against their build quality, independently gets inspected, verified by the NHBC, were very, very strong. As you got to 2016, all of those RIs were getting progressively worse and by the time we got to 2017, they were 0 stars and their RIs were up the range of every other house builder. What I can say in the South division, let alone everywhere else in the organization, RIs, the NHC would look at our build quality in the upper quartile of the project house builders. We've won more awards for build quality than we've won, before. If you then move to health and safety, our statistics are higher, by some distance than, the benchmark. If you move to, customer satisfaction, we are, a fine to that house builder. We were and continue to be, and our scores have actually gone up, including on the nine-month survey. And then if you actually then take staff churn, staff churn is as low as it's been for 10 years. And if you also look at these statistics from the Peakon survey that I mentioned in my opening remarks, we currently have an engagement score of 8.2, which is up on a year ago again. So all of the case, whether it's build quality, whether it's customer satisfaction, whether it's people, whether it's health and safety, are all as good, if not better than they were a year ago, which shows that the business is coping with the phenomenal amount. There's no getting away from it. Amount of change that has come from three acquisitions, changing processes and a change in strategy. Thanks, Will.

Will Jones: Thank you.

Operator: Thank you. Our next question comes from Emily Biddulph of Barclays. Your line is now open. Please go ahead.

Emily Biddulph: Good morning, guys. Thanks for taking my question. I've got three, please. I think I'll probably be all for Tim. Firstly, I think the interest cost from debt this year are likely to be in the mid-£50 million. Based on the rates you disclosed in the annual report, I think that implies a daily average net debt position of something north of £800 million. Can I confirm I'm right on that? And then secondly, can you update us on what the peak capital requirements are for the business? And then finally, so thirdly and linked to this, like, does growth in here necessitate further investment? Like, is the risk that you need to temper your growth ambitions because of the funding requirements? Or are the levers that you can pull on cash or anything else to give yourself sort of some extra headwind? Thanks very much.

Tim Lawler: Yeah. So in terms of the interest cost, I mean, your calculation is not far off because we do have a high sort of seasonal profile and the daily debt is great the average daily debt is greater than the average month end net debt. We would normally say that the average daily debt is something like £200 million higher than the average month end net debt, so slightly lower than the numbers you've just calculated there. In terms of the peak capital requirements, I think we're going to take the second and third ones together and peak capital requirements in tempering grid. So we, went to our cash flow closely, we're aware of the seasonality, I'd love to flatten the profile, but that's the sort of nature of the business and something that will take years to change. But we are not constrained by our capital. So as we're looking at land acquisitions, we're not having to say we haven't got enough cash to buy the land that we need and we've got the financing that we need in place. We're going to as part of our review of medium-term targets, we'll be looking at all of our balance sheet metrics as well. But at the moment, we're not feeling that that is a restraint on growth. We are tempering growth into 2025 as we've said before partly as we take stock of these issues and partly because of market conditions, but it's not a capital constraint-based reduction.

Operator: Thank you. Our next question comes from Chris Millington of Deutsche Bank. Your line is now open. Please go ahead.

Chris Millington: Good morning, guys. If I may, please. Morning, Greg. I'd just like to explore the cost inflation point you referred to in the statement a little bit more, perhaps the details about what's driving that and perhaps your best estimate of what that cost inflation is likely to be in 2025. And perhaps just a lie to that. Can you confirm how that maybe works against some of the fixed price deals you've done in the PRS market? The second one is just about your point on time delivery, Greg. Perhaps could you just give us a feel as to how much more there is to do in 2024 with regard to completions? And perhaps just talk around the phasing of completions around the quarters because it does look like you're getting a little bit back end loaded with that profile of leverage.

Greg Fitzgerald: Okay. So thanks, Chris. So on the cost inflation, we're broadly neutral this year. Has there generally been, inflationary pressures during 2024? Absolutely. But when you're building the number of houses that we are, which is, more than anybody else, we are finding that with subcontractors and suppliers, we are doing and continue to do, some great deals. So, I believe we are in an inflationary environment in 2024, but because of the change in strategy which gives tech contractors visibility, which they absolutely treasure, we are managing to hold on to cost through this year. As we go into 2025 and getting, initial, reactions from discussions we're having with suppliers and subcontractors, I do believe there will be some cost which are now going to be based on our lower number. I do believe we have a lower cost base because of our size, not because we're any better, than the other, house orders. I do believe we will see some inflation, and I believe we'll see inflation of around 3%. That would be, what I see. And part of that 3% will be, in relation to, those subcontractors and suppliers passing on the national insurance costs that the government introduced in the budget that we will also see, during 2,025 onwards, but also a little bit more to it than that. You also then mentioned, Chris, what does that mean for PRS where we have, fixed price contracts? As you probably heard me say before, where we have a fixed price contract, we have very healthy contingency and, more importantly, very healthy fixed price allowances. So those fixed price allowances would be more than the 3% that I've just, raised where I think I and our procurement team think we will get to it. So we are covered on increased costs on those fixed price contracts. Is that right, Chris?

Chris Millington: It was the first thing of completions and what's left this year.

Greg Fitzgerald: Yeah. What I can say, I mean, that's a detailed question, but what I can say to you is, sat here now with our revised expectations, we have, less to do and less risk than we did at the end of October last year. So at the end of October 23, and we got to £419 million kind of profit. We, we're in a stronger position today with the difference between that and where we're now expecting to get to, which is circa £300 million.

Chris Millington: I hear you. All right. Thanks very much, Greg.

Operator: Thank you. Our next question comes from Gregor Kuglitsch of UBS. Your line is now open. Please go ahead.

Gregor Kuglitsch: Hi. I hope you can hear me. So maybe, good morning. I have a few questions. Maybe can I just sort of come back to the leverage point? So you're basically saying this year in the end, £500 million of average debt, which is sort of stable sequentially. I guess my first question is, do you think that can go down next year? Or given where things are, do you think that, that will be challenging? And I guess related to that, you've, I think, reiterated your share buyback program that's ongoing. But I think at the same time, you've kind of put this £1 billion I think that you previously disclosed or announced sort of under review. And I guess I wonder, given the situation on debt and profit, why you've chosen not to suspend the buyback? Perhaps once things stabilize, you can then recommence. I just want to wonder what the thinking is around capital distribution, I guess, at this point, given the performance of the business. Thank you.

Greg Fitzgerald: I'll pass on to Tim. But on the share buyback, we will certainly be looking at the share buyback with regards to our current share price. So, you know, I'd rather be buying the shares back at today's price than where they were. So that will be the direction of travel on that. So Tim, do you want to take the two questions?

Tim Lawler: Yes. So it's probably a bit early to be talking about specific average net debt targets for 2025 given we've not got profit guidance out there. This is a general principle, we would be looking to reduce it slightly given that the £500 million number that I mentioned just before is higher than we have been targeting this year. And we're expecting some good cash generation from some of our projects next year. So we were hoping it would come down, but I'm not going to quantify that at this stage. In terms of the buyback program, as you'll be aware, we're operating at a fairly modest rate at the moment, but staying in the market and continuing to buy over the course of the next couple of months as part of our review of the timeframes. We'll be looking at the timeframes of the future buybacks and the £1 billion all as part of the speed of achieving the medium-term targets. Obviously, there was going to be a lower ordinary distribution arising from the fact that there are lower earnings for 2024 and 2025 than previously expected, which will be factored into the £100 million and we need to look at what the rates of capital release that we have over the course of next 12 months to determine the level of special buybacks that will be on top of those ordinary distributions.

Gregor Kuglitsch: Okay. Could I also maybe follow-up on so that I'm now clear on the debt roughly, where are you looking land credit to this will land? You were £600 million before. And can I push you a little bit more on the provision point? I appreciate you get some tax relief and stuff like that, but give us an idea, are we talking £50 million, £100 million extra as far as safety provision, just to sort give us a little bit of a range of what's possible? Thank you.

Tim Lawler: You can try first, but I really don't want to give a number on that at this stage. We haven't presented anything to the board yet in terms of what that number is. And there are lots of internal challenges still to come. So I'm not going to give a number on that at this stage.

Greg Fitzgerald: And that's right. But we did say in the statement that we think it would be, as it will be used modest. We said not material. Not material, not cash, which is the main thing from that going to Yeah.

Tim Lawler: So was that what's the second part of the question, Gregor? Or was that was that.

Gregor Kuglitsch: Land creditor balance.

Tim Lawler: Yes. Land creditors, no reason to change what you've already assumed in terms of land creditors stable. You know, we're buying good level of land. We talked about yeah. We talked about the, land acquisitions in the second half of the year. So we're in good place in terms of land secure for next year.

Gregor Kuglitsch: Okay. Thank you very much.

Operator: Thank you. Our next question comes from Alastair Stewart of Progressive Equity Research. Your line is now open. Please go ahead.

Alastair Stewart: Hello. Can you hear me?

Greg Fitzgerald: Yes. Good morning, Alastair.

Alastair Stewart: Yes. Good. So it's there. Yeah. And just following on from your reference to PRS being far ahead of the budget. I know that the open market sales aren't such an issue, for you these days. But, did you, most of the other house builders have, reported a slowdown ahead of the budget. Just asking whether today, because you're the latest one. Did you see have you seen since the budget? And I know it's only been a week, and a bit. Has there been any change in in site visitors, clicks to your website, and so on the basis that maybe it is traveling and arriving, that things weren't quite as bad, as expected, before the budget?

Greg Fitzgerald: So we couldn't hardly hear that, Alastair. But I think you're saying, has there been anything on the private market, in the eight to nine days into the budget with regards to the visitor numbers and inquiries on the website? Steven, do you want to take that?

Stephen Teagle: Morning, Alastair. We've seen a sustained demand in terms of the demand for open market sales. We haven't seen an uptick following the budget announcements. We've certainly got levels of interest coming into our business and volumes of inquiries have been sustained at a good level. Affordability remains an issue in certain parts of the country particularly in London. I think that's why it's most acute. But I think what we're expecting is a continuation of increasing the positive sentiment as interest rates move downwards.

Alastair Stewart: Yes. Sorry. Just to be clear, the sounds a bit bad. I was just trying to get a sense of was it really fear of the worst before the budget and things haven't been quite as bad at least in terms of consumer sentiment after the budget. Have you seen any change at all?

Greg Fitzgerald: Yeah. That would be our take on the situation, Alastair. But I think it's I think it's just too early to actually make a thing on it. So that would be people, you know, at the end of the day, the budget was the first, budget done by a new government, a labor government in 14 years, and rumor was rife, etc., etc. And that undoubtedly, impacted people, reserving properties in the five or six weeks leading up to the budget. And I'd also say it actually, impacted people taking a reservation into an exchange, that is actually contracting. So our gut feel is, the budget, didn't affect too much people buying our properties with an ASP as, you know, in the region of £350,000. So our feeling is on top of the interest rate cut yesterday the market will gradually improve as we go through 2025. That's our feeling. Too early to say if that'll be right or wrong.

Alastair Stewart: Great. Thanks very much.

Operator: Thank you. Our next question comes from Ami Galla of Citigroup. Your line is now open. Please go ahead.

Ami Galla: Thank you, guys. Just two questions from me. One was in the order book. Can you give us some color as to how that unwinds in the future years? And the second one was just on the PRS investors. You anticipate the discount of them would widen on the back of what we've heard from on the budget duty side?

Greg Fitzgerald: Sorry. Amy, can you repeat the second question?

Ami Galla: It's really to understand the discount that you offer to PRS investors. Do you anticipate that widening further?

Greg Fitzgerald: No. We don't. In actual fact, we would get less than what we've negotiated over the past 12 to 15 months. So that's the answer to that. And I think your first question was, with regards to the order book, how much of that order book is in relation to 2025, and how much is it into, our ongoing years? And I'm waffling that because I'm looking at Tim who can now answer that question.

Tim Lawler: Thank you. So, of the £4.8 billion in the forward order book, about sort of 20% is actually related to FY ‘24, so we'll unwind before the year end, and about 40% relates to 2025, something in that sort of, range.

Greg Fitzgerald: But it but we do, find ourselves in a positive place for 2025, Ami, on that order book against previous years. As you would expect with our new strategy, which gives us far more visibility of future years than a pure housebuilding business. Thanks, Ami. Next question?

Operator: Thank you. Our next question comes from Harry Goad of Berenberg. Your line is now open. Please go ahead.

Harry Goad: Yeah, hi, good morning. Just with regards to your comment around, I think you said weaker or uneven demand from RPs. Can you just remind me on your business model? Do you need to have all of your partners contractually signed before you progressed land purchase. I am just wondering whether any delays on HARP demand holds up this land purchase or start on-site price as they're thinking about volumes over the next couple of years? Thanks.

Greg Fitzgerald: So I'm we're a partnerships business now. So, in an ideal world, when we buy land, we tie up with a housing association, but not every time. Far from it, do we tie up. But what we do have is an in-principle deal with the housing association. And because we're in partnership and they are trusted partners, we would always expect, by the time we actually start paying out the money for, on deferred terms for the land, the housing association or local authority will be in contract with us, and we'll follow those, land payments to ensure that we remain a capital light business. But, we understand their business plans. We know, what they want, etc., etc. Sometimes we have to jump in and secure the land, but we would only do it, if you like, on the back of a handshake, for point of a better word, with the housing association that we are working with and that house to handshake will be the housing association that we have worked with time and time again over a number a number of years, and we have a fantastic relationship with them. So it's, it's absolutely, and we've never been let down yet, by the way.

Harry Goad: Okay. Thank you.

Operator: Thank you. Our next question comes from Clyde Lewis of Peel Hunt. Your line is now open. Please go ahead.

Clyde Lewis: Good morning all. I think I've still got three as well, if I can. Given where you're now at, does it change your thought processes around what you might want to do with history works and how quickly you might look to expand the activity there? That's the first one. When we're looking at the sort of split between open market and partner funded volumes going forward, again, are you thinking you're going to see a slightly different mix in the next couple of years than you were before? And then the third one was around, I suppose, the land buying criteria again. Have you sort of tweaked your thoughts around targets, mix, big, small, regional differences, etc., again, in light of what we've been talking about for you today.

Greg Fitzgerald: I'll take that in reverse then. So on the land buying, one year on for from the announcement of the strategy, so we have no cash constraints to buy land. The strategy is in a better place than it was when we first announced it because of the government's ambitions. So we are actively out there buying land and as Tim just said to an earlier question, land creditors will be broadly similar to where they were. But that said, we're also one year on and we're learning all of the time. There are certain parts of the country, where housing associations, local authorities, Homes England have a greater appetite, to move forward than others. So for instance, in the Midlands and the North we are absolutely, flying where we have mayors, wanting to really get going on affordable housing, local authorities really pushing to get it going, and housing associations that are better funded than, say, those in London, for instance. So there will be -- it'll be lumpy. We will we will definitely have, going forward, business units in certain parts of the country doing more than in others. But being absolutely no doubt, London, I think, is where, housing associations are struggling the most. We're still doing deals. I'm pleased to say that they are struggling the most, but that is where the acutest shortage absolutely is and it's at prices point. So I've got every confidence over the next 12 months that will be fixed by the Labour government. With regards to Vistry Works, and then I'll let Tim answer the open market versus, Partners X1. I would, with what just happened in the south division, I would suspect where we were looking for around 7,000 plots from industry works next year, the growth plans remain in place. I would say that will now be closer to 6500units. So not much of a change, and we've got down the, timber frame route, partly because of speed, we think it's the right thing and also because of building regulation, and the building regulation changes of future home standards coming through. So no change to our, growth expectations, but, albeit, I suspect, will be 500 to 700 less in Vistry Works next year than the 7,000 we previously said. With regards to open market.

Tim Lawler: Yeah. So none of what we've discovered changes our view on the optimal business model and the split between open market and funded for the works. So that's broadly 2/3 partner funded, 1/3 open market volumes by year in the optimal position. As you know we have 75

Clyde Lewis: Okay, perfect. Thanks guys.

Operator: Thank you. I'll now hand back to Greg Fitzgerald for any further remarks.

Greg Fitzgerald: Okay. Thanks everyone. Thanks for listening. Good questions. I'll just finish by saying, the vast majority of the reduction in profit comes from, our south division, which are made up of four housekeeping businesses converting into partnerships. The change has got nothing to do with them really converting into partnerships. It's to do with, a few more now but predominantly nine large house building sites, which have their build costs wrong by 10% to 12%. And when we made the announcement on October 8th, all I'll say is those build costs weren't wrong on October 7th. They were wrong before that. So this hit which is very unfortunate, very upsetting, and I totally accept that, is basically coming from, predominantly nine sites, few more now, where the build cost has just been wrong, and it's been wrong for a little bit of time. And on that, I just say thank you very much for listening. All the best, and have a good day. Thank you.

Operator: Thank you all for joining today's call. [Operator Closing Remarks].